Nepali Times
Privatising privatisation


Privatisation is not necessarily a neo-liberal priority. It is a process to limit the power of the government and kickstart the economy and wean it away from parasitic parastatals.

Privatisation is not an economic strategy but a political decision, and it needs an open and liberal economic policy. Recent delays in Nepal's privatisation push has confirmed that a government without a popular mandate can't steer privatisation. The reason is that such a drastic transfer of wealth and ownership requires ethical support of citizens and needs a certain expert understanding of the economics of the process.

The government itself admits that the cumulative operational losses of its public enterprises has crossed Rs 4.86 billion a year and this does not include unfounded contingent liability which can run into a few more billions.

Look at the wasted money: the government has spent more than a billion rupees just to settle the dues to staff and bank loans of the now-closed Birganj Sugar Factory. If that money had been used on the Karnali Highway, it would have been completed by now.

There are two formidable challenges to privatisation anywhere, and this is true for Nepal as well: it needs an open and liberal economic policy setting and a responsible preserve of all actors in society - political opposition, free and fair media and a non-corrupt judiciary.

In the absence of the above, the only option left for Nepal is to privatise the privatisation program itself. It is time to challenge the accepted wisdom of international bureaucrats among our multilateral lenders who would oppose such a move.

Governments in the past two years have not even been able to decide on privatisation of a small turpentine factory in western Nepal that has antiquated Soviet-era machines. The staff have been paid off, the factory has been closed but privatisation is stuck. The reason is anticipatory angst over the possibility of being hauled over the coals by the zealous sleuths at the CIAA or the over-zealous ones at the RCCC.

Basically, in the case of the turpentine plant, no one from the Ministry of Finance was technically capable of convincing the Privatisation Committee that current assets do not have a fixed value. What is the use of evaluating current assets if its value is changed during handover of the fixed asset? That is why, in any sane country, the current assets are transferred to the party as agreed between the government and the party at the time of the handover. Not here. And to cut a long story short (which includes complaints to the CIAA by the general manager) lack of technical expertise meant a deadlock in the privatisation process. If this is what happens to a tiny plant, imagine the fate that awaits bigger enterprises on the block.

Take another story: the Lumbini Sugar Factory. Established 18 years ago with Chinese help and cane crushing capacity of 1,000 tons a day. It made some profits when there were no private sugar producers but went under when sugar price was deregulated and other players entered the field. Presently, the government loses Rs 80 million a year keeping Lumbini afloat. Don't the officials know that the factory is virtually closed anyway, farmers have been selling their cane to private factories. Do they ever ask themselves if it is justifiable to lose Rs 80 million of tax payers' money a year to protect the jobs of 800 employees?

If the politicians can't bell the cat, let the private sector step in. Contract out the privatisation program to a team of private professionals. It may appear too radical in the present political climate, but that is the only way to rescue Nepal's moribund economic devolution. Donors who have been approached with this idea say it is unrealistic. Oh yeah? Now, why would that be?

Is it more realistic to leave privatisation to a government that lacks political will, the moral fortitude and the technical expertise to see it through?

Let's amend the Privatisation Act 1994 which was passed at a time when we had an accountable and democratic government responsible to the people and a system of checks and balances in parliament. The existing Privatisation Committee should be reshuffled assigning the Chief Secretary as chairman. The Office of Privatisation should not be top-heavy and be manned by at most five people, a chief who is technically familiar with the process and good working relation with policy-makers and professionals including a transaction manager.

Dr Bhola Chalise served as secretary to HMG's Ministry of Industry for many years and is now a liberal economist.

(11 JAN 2013 - 17 JAN 2013)